2021 (6) TMI 399 - AT - Income Tax

Capital gain computation - expenditure incurred for transfer of the property - as per AO set off any capital gains tax liability and to claim capital loss in the return with the sole purpose to evade tax - assessee has deducted as expenditure incurred on such transfer and after claiming indexed cost of acquisition has claimed capital loss - HELD THAT - Assessee might have received more money for the first and second floor from the buyer who had shown lesser amount of sale consideration to avoid future tax liability. At the same time, the assessee has also enclosed a receipt for ₹ 600/- mentioning the existence of first and second floor. It is also pertinent to mention here that the AO has not called the buyer to find out the truth nor the assessee has produced the buyer for his examination. It is also not understood as to how the valuer has given the report without verifying the existence of the property and has simply valued the property on the basis of submissions made by the assessee. We deem it proper to restore the issue to the file of the AO with a direction to grant one final opportunity to the assessee to substantiate his case by producing the buyer and the registered valuer for their examination by the AO and to arrive at the true character of the property. The AO shall decide the issue - Grounds raised by the assessee are accordingly allowed for statistical purposes.

Summary

Issues Involved:
1. Determination of long-term capital gain.
2. Indexed cost of acquisition and construction.
3. Deduction of expenditure incurred on transfer.

Detailed Analysis:

1. Determination of Long-Term Capital Gain:
The primary issue revolves around the computation of long-term capital gain arising from the sale of property. The assessee sold a property for ?83,50,000 and claimed a capital loss of ?18,71,700 by deducting the indexed cost of acquisition. The AO, however, determined the long-term capital gain at ?40,93,635 by rejecting the assessee's claim of indexed cost of acquisition and expenditure incurred on transfer.

2. Indexed Cost of Acquisition and Construction:
The assessee claimed the indexed cost of acquisition based on a valuation report dated 25th August 2014, which included the construction cost of the ground, first, and second floors. However, the sale deed dated 25th February 2014 indicated that only the ground floor was sold. The AO found contradictions in the assessee's statements regarding the construction of additional floors and deemed the valuation report as an afterthought to evade tax. The CIT(A) upheld the AO's decision, noting that the assessee failed to provide credible evidence to substantiate the existence of the first and second floors and that the valuation report was prepared post-sale without physical inspection.

3. Deduction of Expenditure Incurred on Transfer:
The assessee claimed a deduction of ?5,50,000 as expenditure incurred on transfer, which included electricity and water bills and payments to relatives to settle the issue for selling the property. The AO rejected this claim, stating that the expenses were not covered under the expenses on transfer as per the IT Act. The CIT(A) concurred, highlighting that the expenses were for regular maintenance and not for the improvement of the asset, and the payment to relatives lacked specific details.

Tribunal's Decision:
The Tribunal considered the arguments from both sides and noted the inconsistencies in the assessee's claims. The Tribunal observed that the sale deed only mentioned the ground floor, and the valuation report was prepared based on the assessee's submissions without physical verification. The Tribunal also noted that the AO did not summon the buyer to verify the claims, nor did the assessee produce the buyer for examination.

In the interest of justice, the Tribunal restored the issue to the AO with directions to grant the assessee a final opportunity to substantiate his claims by producing the buyer and the registered valuer for examination. The AO was instructed to decide the issue based on facts and law after giving the assessee due opportunity of being heard.

Conclusion:
The appeal filed by the assessee was allowed for statistical purposes, with the matter remanded back to the AO for further examination and determination based on additional evidence and proper verification.